THE RETIREMENT age will be raised to 66 in four years and eventually to 68 as part of a comprehensive reform of the pension system which will also include the introduction of a new mandatory “auto-enrolment” pension for middle- and lower-income workers in the private sector.
Under the National Pension Framework announced by the Government yesterday, most workers aged over 22 will be automatically enrolled in a pension scheme which will provide additional retirement income on top of the State pension, unless they are already members of an occupational scheme.
Employees will contribute 4 per cent of salary to the new defined-contribution scheme with employers paying 2 per cent and the State another 2 per cent.
The Government has also undertaken to preserve the State pension at its present value of 35 per cent of average industrial earnings.
The current public service pension scheme will be changed for new entrants from this year, giving them a pension based on career average earnings rather than final salary.
The Government is also considering using the consumer price index in future as the basis for post-retirement increases for public servants. They now rise in line with salaries.
The qualification age for the State pension will rise from 65 to 66 in 2014. It will go up again to 67 in 2021 and up to 68 in 2028. In tandem with raising the pension age, in 2014 the regulation which prevented people from continuing in employment after the age of 65 will be removed.
Another important change will allow people who work in the home for up to 10 years to get full credit for that towards their pensions.
Launching the plan, Taoiseach Brian Cowen said that at present there were about six people at work to support every pensioner but, by 2060, that figure would be less than two. Spending on public pensions would increase from 5.5 per cent of gross domestic product in 2008 to almost 15 per cent in 2050.
He added that the Government was committed to ensuring that everyone had an adequate income in old age and that was why such significant resources had been devoted to increasing the basic State pension.
“The State will continue to play its part. But individuals and their employers must also contribute. The proposed auto-enrolment scheme set out in the framework provides a mechanism for maximising pension coverage, particularly among those on lower incomes, involving a contribution by the individual, the State and their employer.”
Minister for Finance Brian Lenihan said the introduction of a new pension scheme for new entrants to the public service was designed to bring public service pension terms more in line with private sector norms and to make a closer connection between contribution levels and benefits received.
Fine Gael social and family affairs spokeswoman Olwyn Enright described the plan as “a massive gift to the pensions industry” which was already sucking €1 billion out of pension provision every year.
Main points
- State pension age rises from 65 to 68, in stages, by 2028
- Introduction of "soft" mandatory pension for most workers over the age of 22 by 2014
- Reduction in tax relief on pension contributions for earners on higher income tax rate to 33 per cent
- Switch to SSIA-style matching contributions from State on pension contributions
- Extension of flexible approach to drawing down pension for all defined-contribution schemes by 2011
- Suggestions for reform of defined-benefit pensions
- New single pension scheme for new public service workers
- Commitment to try to retain level of State pension at 35 per cent of average weekly earnings